Employers Unexpectedly Cut 23,000 Jobs In July — Markets See September Fed Hike as Less Likely (UPDATED)

by | Aug 7, 2026 | General

Editor’s note: This article was updated to add more context and detail.

The U.S. labor market unexpectedly weakened in July as a surge in government layoffs pushed overall job growth into negative territory.

Nonfarm payrolls contracted by 23,000 in July, against a consensus estimate of 83,000 and down from June’s downwardly revised 20,000, data published Friday by the Bureau of Labor Statistics showed.

The unemployment rate came in at 4.1%, versus the 4.2% economists expected.

Average hourly earnings rose 0.1% on the month, missing the 0.3% expected, and 3.2% from a year earlier, below the 3.5% predicted.

May nonfarm payrolls were revised down by 66,000 to 63,000. Similarly, the June reading was revised down by 37,000, to 20,000.

Where Did the US Economy Add and Lose Jobs?

According to the Bureau of Labor Statistics, July’s headline weakness was driven largely by government payrolls.

Local government education shed 50,000 jobs, while retail employment fell by 19,000.

Health care remained the economy’s main source of hiring, adding 22,000 positions, although even that represented a slowdown from the average pace seen over the previous year

Overall, private payrolls held at 30,000, unchanged from June, but missing the 78,000.

Why This Matters for the Fed

Financial markets immediately interpreted the cooler-than-expected jobs report as reducing the urgency for additional Fed tightening.

Fed futures repriced the probability of a September 16 rate hike lower to 45% Friday morning, according to CME FedWatch.

On July 29 the Federal Open Market Committee held the federal funds rate at 3.50% to 3.75% for a fifth straight meeting.

Three regional presidents dissented, preferring a quarter-point increase: Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas.

Markets Show a Risk-on Reaction

The yield on the two-year Treasury — the maturity most sensitive to monetary policy expectations — fell roughly seven basis points to around 4.16%, while the U.S. Dollar Index dropped nearly 0.5%.

Gold futures surged more than 1% as lower real yields boosted demand for non-yielding assets, while equity futures rallied broadly, led by technology stocks.

The Nasdaq 100 – as tracked by the Invesco QQQ Trust (NASDAQ:QQQ) – climbed roughly 0.7%, with the S&P 500 and Russell 2000 also moving higher.

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